Sri. Shankarlal Gilada, Gulbarga V. Income-Tax Officer, Bangalore

ITA 1534/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7680 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 24-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR SUBASH K R
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-C BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS. 1534 & 1535/BANG/2016 ASSESSMENT YEARS : 2012-13 & 2013-14 SHRI SHANKARLAL GILADA, H.NO. 1-10/5, KHOOBA PLOTS, GULBARGA 585 002. PAN: AHWPS 6995D VS. THE INCOME TAX OFFICER, WARD 3 (1) (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETHAL BORKAR, ADVOCATE RESPONDENT BY : DR. SUBASH K.R., JCIT (DR) DATE OF HEARING : 16.08.2017 DATE OF PRONOUNCEMENT : 24.08.2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. CIT(A)-3, BANGALORE BOTH DAT ED 22.06.2016 FOR ASSESSMENT YEARS 2012-13 AND 2013-14. BOTH APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. ITA NOS. 1534 & 1535/BANG/2016 PAGE 2 OF 8 ASSESSMENT YEAR 2012-13:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX(A)ERRED IN PASSING THE ORDER IN THE MANNER HE DID. 2. THE LEARNED COMMISSIONER (A)FURTHER OUGHT TO HAV E APPRECIATED THAT NO PART OF BORROWED FUND WERE UTILIZED IN MAKING INVESTMENT AND FURTHER AO HAVING NOT ESTABLISHED THE NEXUS BETWEEN BORROWED FUND AND INVESTMENT, OUGHT TO HAVE DELETED THE ADDITION IN TOTO. 3. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING THE ADDITION U/S.14A R.W.RULE 8D OF THE RULE WHERE NO EXPENDITURE IS INCURRED FOR EARNING EXEMPT INCOME. 4. THE LEARNED COMMISSIONER (A) FURTHER OUGHT TO HAVE APPRECIATED THAT THE AO HAS MADE AN ADDITION WITHOUT RECORDING SATISFACTION WITH REGARD TO THE C LAIM OF THE APPELLANT AND HENCE OUGHT TO HAVE DELETED TH E ADDITION IN TOTO. 5. WITHOUT PREJUDICE, THE ADDITION IS EXCESSIVE, ARBITRARY AND UNREASONABLE AND LIABLE TO BE DELETED IN TOTO. 6. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING THE INTEREST U/S.234A, 234B OF THE ACT. 7. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING THE INTEREST U/S.234D OF THE ACT. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRA YS THAT THE APPEAL MAY BE ALLOWED. ASSESSMENT YEAR 2013-14:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX(A)ERRED IN PASSING THE ORDER IN THE MANNER HE DID. 2. THE LEARNED COMMISSIONER (A)FURTHER OUGHT TO HAV E APPRECIATED THAT NO PART OF BORROWED FUND WERE UTILIZED IN MAKING INVESTMENT AND FURTHER AO HAVING NOT ESTABLISHED THE NEXUS BETWEEN BORROWED FUND AND INVESTMENT, OUGHT TO HAVE DELETED THE ADDITION IN TOTO. ITA NOS. 1534 & 1535/BANG/2016 PAGE 3 OF 8 3. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING THE ADDITION U/S.14A R.W.RULE 8D OF THE RULE WHERE NO EXPENDITURE IS INCURRED FOR EARNING EXEMPT INCOME. 4. THE LEARNED COMMISSIONER (A) FURTHER OUGHT TO HAVE APPRECIATED THAT THE AO HAS MADE AN ADDITION WITHOUT RECORDING SATISFACTION WITH REGARD TO THE C LAIM OF THE APPELLANT AND HENCE OUGHT TO HAVE DELETED TH E ADDITION IN TOTO. 5. WITHOUT PREJUDICE, THE ADDITION IS EXCESSIVE, ARBITRARY AND UNREASONABLE AND LIABLE TO BE DELETED IN TOTO. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRA YS THAT THE APPEAL MAY BE ALLOWED. 3. THE LD. AR OF THE ASSESSEE PLACED RELIANCE ON THE J UDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CCI LT D. VS. JCIT AS REPORTED IN 250 CTR 291(KAR). SHE ALSO PLACED RELI ANCE ON TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. M/S. SUBRAMA NYA CONSTRUCTIONS & DEVELOPMENT CO. LTD. IN ITA NO. 404(BANG) 2013 & C.O. NO. 89(BANG)/2013 DATED 20.02.2015. SHE SUBMITTED A CO PY OF THE ABOVE JUDGMENTS. AT THIS JUNCTURE, A QUERY WAS RAISED BY THE BENCH THAT IN THE CASE OF CCI LTD. VS. JCIT(SUPRA), THE ISSUE WAS OF A DEALER IN SHARES AND THEREFORE, SHE WAS ASKED TO POINT OUT WHETHER IN TH E PRESENT CASE ALSO, THE ASSESSEE IS A DEALER IN SHARES OR NOT. IN REPLY, S HE SUBMITTED THAT THE ASSESSEE IS NOT A DEALER IN THE SHARES IN THE PRESE NT CASE AND THEREAFTER A FURTHER QUERY WAS RAISED BY THE BENCH THAT IN THE C ASE OF DCIT VS. M/S. SUBRAMANYA CONSTRUCTIONS & DEVELOPMENT CO. LTD.(SUP RA), IT IS NOTED BY ITA NOS. 1534 & 1535/BANG/2016 PAGE 4 OF 8 THE TRIBUNAL THAT THIS WAS THE CLAIM OF THE ASSESSE E BEFORE THE AO IN THAT CASE THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDI TURE ON EARNING OF EXEMPT INCOME. THE BENCH WANTED TO KNOW WHETHER IN THE PRESENT CASE ALSO, ANY CLAIM WAS MADE BY THE ASSESSEE BEFORE THE AO AFTER HE MADE A QUERY ASKING THE LD. AR OF THE ASSESSEE TO FURNISH THE DETAILS OF EXPENDITURE ATTRIBUTABLE TO EARN EXEMPT INCOME AS N OTED BY THE AO IN PARA NO. 5 OF THE ASSESSMENT ORDER. IN REPLY THE L D. AR OF THE ASSESSEE COULD NOT SUBMIT ANY EVIDENCE REGARDING RAISING OF ANY SUCH CLAIM BY THE ASSESSEE BEFORE THE AO. SHE SIMPLY DRAWN MY ATTENTI ON TO STATEMENT OF FACTS (SOF) FILED BEFORE THE CIT (A) FOR A. Y. 2013 14 AND IN PARTICULAR, MY ATTENTION WAS DRAWN TO LAST PARA ON PAGE 2 OF SO F. 4. IN REPLY THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. SHE ALSO PLACED RELIANCE ON JUDGMENT OF HONBLE KAR NATAKA HIGH COURT RENDERED IN THE CASE OF BHARATH BEEDI WORKS (P.) LT D. VS. ADDITIONAL COMMISSIONER OF INCOME-TAX AS REPORTED IN 242 TAXMA N 492 (KARNATAKA). AT THIS JUNCTURE ALSO, A QUERY WAS RA ISED BY THE BENCH ASKING THE LD. DR OF REVENUE AS TO WHETHER IN THE P RESENT CASE, DISALLOWANCE U/S. 14A WAS MADE BY THE AO OUT OF INT EREST EXPENSES BECAUSE IN THE CASE CITED BY HIM, THE ISSUE WAS REG ARDING AVAILABILITY OF INTEREST FREE FUND AND DISALLOWANCE U/S. 14A WAS TO WARDS INTEREST ITA NOS. 1534 & 1535/BANG/2016 PAGE 5 OF 8 EXPENDITURE. IN REPLY THE LD. DR OF REVENUE SUBMIT TED THAT IN THE PRESENT CASE, FOR A. Y. 2012 13, THERE IS DISALLOWANCE OF RS. 116,664/- OUT OF INTEREST EXPENDITURE AND RS. 133,030/- OUT OF ADMIN ISTRATIVE EXPENSES TOTAL RS. 249,694/- BUT IN A. Y. 2013 14, TOTAL DISALLOWANCE OF RS. 106,630/- MADE BY THE AO IS OUT OF ADMINISTRATIVE E XPENSES TO THE EXTENT OF 0.5% OF AVERAGE INVESTMENT AND NO DISALLOWANCE O UT OF INTEREST. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. I FIND THA T IN PARA NO. 5 OF THE ASSESSMENT ORDER, THE AO HAS NOTED THAT IN COURSE O F ASSESSMENT PROCEEDINGS, THE LD. AR OF THE ASSESSEE WAS ASKED T O FURNISH THE DETAILS OF EXPENDITURE ATTRIBUTABLE TO EARN EXEMPT INCOME. TH EREAFTER THERE IS NO NOTING OF AO IN RESPECT OF ANY REPLY OF LD. AR OF A SSESSEE ON THIS ASPECT. IN COURSE OF HEARING BEFORE THE TRIBUNAL, THE BENCH MADE A SPECIFIC QUERY FROM LD. AR OF ASSESSEE ASKING HER TO SHOW AND PROD UCE THE EVIDENCE REGARDING ANY SUCH CLAIM MADE BY THE ASSESSEE BEFOR E THE AO THAT NO EXPENSES WAS INCURRED BY THE ASSESSEE IN RESPECT OF EARNING OF EXEMPT INCOME. BUT NO SUCH EVIDENCE WAS BROUGHT ON RECORD BY LD. AR OF THE ASSESSEE. SHE SIMPLY DRAWN MY ATTENTION TO STATEME NT OF FACTS (SOF) FILED BEFORE THE CIT (A) FOR A. Y. 2013 14 AND IN PARTICULAR, MY ATTENTION WAS DRAWN TO LAST PARA ON PAGE 2 OF SOF. AS PER THE SAME, IT IS THE CLAIM OF THE ASSESSEE THAT AS PER THE PROVISION S OF SECTION 14A, ITA NOS. 1534 & 1535/BANG/2016 PAGE 6 OF 8 DISALLOWANCE CAN BE MADE OUT OF DIRECT EXPENSES REL ATED TO EXEMPT INCOME AND NOT OUT OF INDIRECT EXPENSES. THERE IS N O MERIT IN THIS CLAIM AND THIS CLAIM IS NOT AKIN TO THIS THAT THE ASSESSE E HAS NOT INCURRED ANY INDIRECT EXPENSES FOR EARNING EXEMPT INCOME AND THE REFORE, THE JUDGMENT CITED BY HER HAVING BEEN RENDERED IN THE CASE OF DC IT VS. M/S. SUBRAMANYA CONSTRUCTIONS & DEVELOPMENT CO. LTD.(SUP RA) IS NOT APPLICABLE IN THE PRESENT CASE. HENCE, THE DISALLOW ANCE IN BOTH YEARS TO THE EXTENT OF 0.5% OF AVERAGE INVESTMENT IS PROPER AS PER RULE 8D AND SECTION 14A AND NO INTERFERENCE IS CALLED FOR IN TH E ORDER OF CIT (A) ON THIS ASPECT. 6. REGARDING DISALLOWANCE OF INTEREST IN A. Y. 2012 13 OF RS. 116,664/- OUT OF INTEREST EXPENDITURE, THIS IS THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE THAT INTEREST FREE FUND AVAILABLE ON 31.03 .2012 IN THE FORM OF CAPITAL IS RS. 632.88 LACS AS AGAINST INVESTMENT ON THAT DATE OF RS. 320.04 LACS AND THEREFORE, NO DISALLOWANCE OUT OF INTEREST IS CALLED FOR U/S 14A. IN THIS REGARD, I FIND THAT AS PER RULE 8D, IN THE CAS E OF MIXED FUNDS AS IN THE PRESENT CASE, IF THE ASSESSEE ESTABLISHES THAT INVE STMENT IS HAVING DIRECT NEXUS WITH INTEREST FREE FUNDS THAN TO THE EXTENT O F SUCH INVESTMENT, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR. SIMILARLY, IF THE ASSESSEE ESTABLISHES DIRECT NEXUS BETWEEN INTEREST BEARING FUND AND ITS USE ITA NOS. 1534 & 1535/BANG/2016 PAGE 7 OF 8 FOR EARNING TAXABLE INCOME THAN ALSO, INTEREST ON S UCH BORROWINGS IS TO BE DISREGARDED FOR PROPORTIONATE DISALLOWANCE OUT OF I NTEREST EXPENDITURE. SIMILARLY, IF THE AO ESTABLISHES DIRECT NEXUS BETWE EN INTEREST BEARING BORROWED FUNDS AND INVESTMENT THAN TO THAT EXTENT, ENTIRE INTEREST EXPENDITURE IS TO BE DISALLOWED AND NOT PROPORTIONA TE INTEREST. BUT IN RESPECT OF THE INTEREST BEARING BORROWED FUNDS, FOR WHICH DIRECT NEXUS IS NOT ESTABLISHED BY THE AO WITH INVESTMENT OR BY ASS ESSEE WITH TAXABLE INCOME, PROPORTIONATE DISALLOWANCE HAS TO BE MADE A S PER RULE 8D. IN THE PRESENT CASE, NO SIDE HAS ESTABLISHED ANY DIRECT NE XUS AND THEREFORE, PROPORTIONATE DISALLOWANCE MADE BY THE AO AS PER RU LE 8D IS JUSTIFIED AND NO INTERFERENCE IS CALLED FOR ON THIS ASPECT AL SO. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF AUGUST, 2017. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 24 TH AUGUST, 2017. / MS/ ITA NOS. 1534 & 1535/BANG/2016 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.